Lead Indicator Index dips to 104 points

The Edelweiss ET Now Lead Indicator Index for May has dipped considerably to 104 points, reflecting an underlying weakness in the economy.

According to Nischal Maheshwari, head of research, Edelweiss Securities , "What has specifically changed for the month is that cement dispatches have been particularly weak. In this case, it was nine months ago when cement dispatches were weak, so that's why the indicator has come down."

The weakness in the Lead Indicator Index is not being seen as a one-off situation. While the index has been strong for some months now, the weakness could continue for time to come.

"General conditions out there are becoming a bit weak and that is why the indicator is also giving in," says Mr Maheshwari. "I believe some amount of moderation is definitely on the cards because the IIP - one of the indicators we use - the CV cycle, the rising interest rate and sticky inflation will continue to put pressure on the indicator," he adds.

"We also have been tracking inflation very closely. We agree with the government's indication of peaking out, maybe around September or October," explains Mr Maheshwari.

The index peaked in the second quarter of FY11 but moderated thereafter, capturing moderation in the non-agri GDP in the subsequent quarters.